This year has been host to a large number of natural disasters that have born a heavy price tag to the insurance industry. While natural disasters may not be happening more frequently, they are certainly happening in areas of dense population, making the damage they cause astronomical. Consumers often look to the insurance industry to provide protections against natural disasters, but the industry can only do so much. A new report from the University of Pennsylvania’s Wharton School suggests that government policy, as well as consumer initiative, may significantly reduce the cost of natural disasters.
The report notes that insurance coverage is rare for property owners in disaster-prone areas of the nation. In regions where disaster insurance is required, homeowners often purchase bare bones policies and let them expire in the following years. The report finds that homeowners are also less concerned with taking an active role in protecting their property, opting instead to rely on the government or insurance industry to mitigate any damage caused by natural disasters.
Authors of the report, Howard Kunreuther and Erwann Michel-Kerjan, both professors at the University of Pennsylvania, are recommending that the federal government adopts a program that creates incentives for consumers to purchase insurance plans and build up their own protections against natural disasters. Part of the duo’s proposal suggests that insurers take more responsibility in educating homeowners about the financial risks associated with a unprotected property. The proposal would also have insurers shoulder some of the financial burden in fortifying a property against hurricanes, floods and earthquakes.
The report can be found in the latest issue of the journal Science and Technology.